Where Each Rung Actually Comes From

Rule 4 of 14 in this unit2.1.1

2.1.1 Equity Securities

SIE outline 2.1.1

Where Each Rung Actually Comes From

Rungs 1–3 are the Bankruptcy Code: 11 U.S.C. §725 disposes of liened property before the estate's distribution, and 11 U.S.C. §726(a) then pays §507 priority claims, then general unsecured claims. Rung 4 is a private subordination agreement that 11 U.S.C. §510(a) makes "enforceable... to the same extent that such agreement is enforceable under applicable nonbankruptcy law." Rungs 5 and 6 are not in the Code at all: the preferred's place above the common is the liquidation preference in the certificate of incorporation, DGCL §151. NOT "the Bankruptcy Code ranks preferred above common." It does not mention them in that order. 11 U.S.C. §726(a)(6) simply returns any surplus "to the debtor", and the charter decides how the equity splits it.

The method for this kind of question

1h45m ÷ 80 items = 78.75 seconds per item. A voting or Rule 144 item should cost about 45.
Three facts decide which formula you are in: does the charter provide cumulative voting? does the issuer report? is the seller an affiliate?
Cumulative voting = shares × seats, and it favours the MINORITY holder. Statutory = your share count per seat.
Rule 144(e) takes the GREATEST of 1% outstanding and the 4-week average weekly volume: never automatically the 1%.
Rule 144(d): 6 months if the issuer reports, 1 year if it does not. The clock runs from acquisition.
Liquidation: sort by claim type, not by how safe the name sounds. A subordinated debenture still outranks preferred stock.
Next: SIE Practice Quiz #5: Equity Securities, every answer explained.

Now answer

1 question on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

A corporation holds 50,000 of its own previously issued shares as treasury stock. What is true of those shares at the corporation's next shareholder vote?

A. They neither vote nor count toward the quorum B. They vote normally, the same as any outstanding share C. They count toward the quorum but may not vote D. They vote only on matters the board designates

How sure are you?

Sure Fairly sure Guessing

Correct: A. State corporation law's own text says treasury shares shall neither be entitled to vote nor be counted for quorum purposes.

B. Treasury shares carry no vote at all, unlike ordinary outstanding shares.

C. The statute denies them both the vote and the quorum count, not one alone.

D. The statute grants the board no power to selectively enable a treasury share's vote.

Unit: SIE outline 2.1.1

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